The Australian Securities and Investments Commission (ASIC) has released Consultation Paper 311 seeking input from interested parties on 15 proposals that will change the way Australian Financial Services Licence (AFSL) holders conduct and report on internal dispute resolution (IDR)  processes. Submissions close on 9 August 2019, with the final revisions to Regulatory Guide 165: Internal Dispute Resolution to be published in December 2019. The measures are proposed to be progressively implemented between December 2019 and June 2021.

In a post Royal Commission environment, the proposals resonate strongly with the renewed focus on putting customers first. The implementation timeframe also closely mirrors the implementation of design and distribution obligations (DDO), which take effect from 5 April 2021. See our earlier blog post about the DDO regime.

The proposals will apply to all AFSL holders, such as insurers who deal with retail clients and intermediaries who hold their own licence. In the words of ASIC Deputy Chair Karen Chester;

Firm performance in how they handle customer complaints, and their interaction with AFCA, will increasingly be in plain sight. This greater transparency will inform consumer and broader public understanding of how well firms treat their customers…ASIC expects greater investment and attention by Boards to their own internal customer complaints data and complaints handling performance.”

The changes

AFSL holders are required to have IDR processes to investigate and resolve complaints made by consumers. If the IDR process is unsuccessful, the consumer or small business may lodge a complaint with the Australian Financial Complaints Authority (AFCA), an external dispute resolution scheme.

The proposed amendments to ASIC’s IDR standards will:

  • Expand the definition of ‘complaint’: The new definition will capture complaints ‘about’ an AFSL holder, including those made by consumers on an AFSL holder’s social media platforms. This is because ASIC’s research indicated that social media is being used as a complaints channel. The revised RG 165 also includes guidance on what is considered a complaint.
  • Align the definition of small business: The definition of small business in the Corporations Act 2001 (Cth) will be aligned to the one that applies in the AFCA Rules.
  • Require recording of all complaints: Currently RG 165 encourages but does not require AFSL holders to record complaints that are resolved to the complainant’s complete satisfaction within 5 working days, unless the complaint is about a declined insurance claim or the value of an insurance claim. The proposal is to require AFSL holders to record all complaints, even in those situations where a formal IDR response is not required. ASIC’s rationale for this proposal is that it will assist AFSL holders to identify emerging issues and drivers of complaints, and optimise consumer experience through feedback to product and service delivery areas.
  • Introduce IDR reporting requirements: ASIC proposes to issue a legislative instrument that will require all AFSL holders to report IDR data to ASIC. The data will be lodged with ASIC at six monthly intervals and will require reporting of 37 unique data variables, 29 specific to each complaint. The reportable details include the AFSL holder’s unique reference number for the complaint, demographic information relating to the complainant, nature of the complaint, the complainant’s desired outcome, details of referral to AFCA, amount of financial compensation paid and status of the complaint.
  • Publicise IDR Data: ASIC proposes to use its powers under the Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) to publish information relating to internal dispute resolution at both an aggregate and individual AFSL holder level. While the information to be published will be subject to a separate consultation, once the revised RG 165 has been finalised, ASIC is currently seeking input on what principles should guide ASIC’s approach to publication of IDR data.
  • Impose new minimum content requirements: ASIC is concerned about the quality of IDR responses provided to complainants across the financial services sector and proposes to set out new minimum requirements. The IDR response will be required to:
  1. identify and address all issues raised in the complaint;
  2. set out the AFSL holder’s finding on material questions of fact and refer to the information that support those findings; and
  3. provide enough detail for the complainant to understand the decision and be fully informed when deciding whether to escalate the matter to AFCA or another forum.
  • Reduce timeframes: ASIC proposes to reduce the maximum IDR timeframe for insurance disputes from 45 days to 30 days, and include more guidance on when a breach report must be submitted to ASIC for non-compliance.
  • Reassess the role of customer advocates: Some AFSL holders employ customer advocates who review or advise on the operation of IDR processes, and may review individual complaints that have not been resolved by the IDR process. ASIC is concerned that customer advocates may delay access by consumers to AFCA, and consumers may think that the customer advocate process is an additional mandatory process which follows IDR before they can escalate to external dispute resolution. ASIC seeks input on whether customer advocates should comply with RG 165.
  • Take action on systemic issues: ASIC seeks to put in place clear lines of accountability for handling complaints and identifying systemic issues, including involvement of boards and executive committees. This will include provision of material to boards and committees for analysis, requiring staff to analyse each complaint to determine whether it involves potentially systemic issues, and to escalate these issues to the appropriate areas for action.
  • IDR Standards: ASIC proposes to introduce IDR standards consistent with AS/NZS 10002:2014. These standards will be adopted by AFSL holders to suit the nature, scale and complexity of their business. They encompass top-level commitment to complaint management, development of readily accessible IDR systems, maintaining proper resources dedicated to the IDR function, being responsive to complaints, objectiveness and fairness principles, documented policies, ongoing analysis and continuous improvement.

What’s next

For more information about the changes, and to have your say, head to ASIC’s website.

In our view, the changes reflect regulators’ approach following the Royal Commission to ensure that financial firms put their customers first. Customer centricity is behind a number of upcoming reforms, including the DDO regime, removal of the claims handling exemption, and enforceable code provisions. Regulators are also taking more enforcement action against financial firms.

If all these proposals are implemented, AFSL holders will need to invest in systems to ensure that they can comply with the recording and reporting obligations. This is in addition to existing record keeping and reporting obligations, and the new ones under the DDO regime. AFSL holders may also need to upskill their staff to manage complaints in accordance with the new RG 165 requirements. Accordingly, they should adopt a holistic approach to revising their dispute resolution frameworks to ensure that feedback from customers through any complaint function is appropriately captured, analysed, and reported.

Feel free to get in touch with any of the authors if you would like further information.